More transparency 'will bring more funds to Gulf'

Manama, August 2, 2010

The Gulf region could draw in an extra 10 percent in annual fund inflows if it got serious about improving transparency and fighting irregularities that have plagued the region for years, a Reuters poll showed.

The six Gulf countries face rising pressure from their young and fast growing populations to create jobs by attracting investment outside the oil and gas industries.

Global banks are also struggling to draw investors to dedicated Middle East equity funds, seeking to tap growth in the world's top oil exporting region.

On both these counts economists and managers say companies and business practices need to become more open in a region where there is little corporate disclosure and shares often move ahead of bourse filings.

'Many governments in the Gulf cannot be more transparent than they currently are, given their economic model and political climate,' said Ghanem Nuseibeh, senior analyst at Political Capital in Dubai.

'Foreign investment is attracted to the Gulf essentially because of the revenues generated by oil and gas,' he said.

Analysts said improvements in isolated areas such as more information on implicit government guarantees and an end to name lending were enforced by the market and not a result of political will.

Saudi Arabia, Kuwait and Bahrain have unveiled plans to fight violations and improve company disclosures, but analysts doubt much will happen as a corporate culture is underdeveloped, regulators are inefficient and big families control firms and state institutions at the same time.

By Gulf standards, Saudi Arabia has the toughest central bank keeping a tight grip on banks but its culture of secrecy shown last when dealing with debt problems of family firms is frustrating investors who also complain that company disclosure levels are still not sufficient.

Kuwait enjoys the worst reputation in the Gulf as the Opec producer only now is launching a regulator. Many corporate results end up in newspapers first, while big countries are controlled by members of the ruling family dominating key ministries which creates a conflict of interest.

In Bahrain, the central bank has said it is toughening up some rules.

The Gulf region is estimated to be a net exporter of capital as its governments prefer to invest most of their oil wealth abroad while its opaque financial markets attract very little funds from international investors.

Index provider MSCI has denied the region emerging market status because regulators have failed to address its concerns.

While there is no reliable data for the Gulf, the International Monetary Fund (IMF) estimates about $56 billion will leave the Middle East and North Africa in net private portfolio flows in 2010.

Five out of 10 respondents to the poll of regional banks and economists said annual fund inflows would increase by about 10 percent from current levels if the region improved corporate disclosures and the quality of regulations, with the other five estimates ranging from five to 30 percent.

For nine out of 10 respondents better corporate disclosures was the area in which the region needs to improve most. But most respondents were sceptical policymakers are serious about improving transparency. - Reuters